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Thursday, December 1, 2016

Traffic blockades, stone pelting and varying degrees of violence reflected the growing impatience among population in Uttar Pradesh as banks once again couldn't dispense cash on Wednesday.

In Meerut, hundreds of irate customers resorted to violence when a Syndicate Bank branch on Hapur Road announced that it was left with no cash to dispense. Sensing danger, bank staff locked themselves inside the premises as crowd went on rampage damaging vehicles and blocking traffic. They also burnt an effigy of PM Modi.

When police teams arrived on the spot, protesters indulged in stone pelting that left circle officer (Civil Lines) Arvind Kumar injured. Later, police had to resort to mild lathi-charge to disperse the crowd. In Agra too, police had to use lathis to scatter an angry crowd outside Oriental Bank of Commerce's Kagrol branch in Kheragarh block of the district on Wednesday afternoon.

In Doghat village of Baghpat district, the situation turned serious when bank officials had to run out of the branch building and take refuge in a local police station.

In Pilibhit, farmers protested against lack of cash in BoB branches by blocking the highway and burning effigy of the branch manager. They also staged a dharna outside the bank branch. Reports of uproarious scenes were received from other branches of the bank in the district too.

Meerut senior superintendent of police J Ravindra Goud said, "We are on alert for Thursday and have summoned our reserve forces as well. We have made elaborate plans to keep tempers in check. We, too, are hoping that cash arrives in banks by Thursday morning."

Off the black mark

It might have been better to go after real estate transactions, the movie industry, gold, weddings, election financing and benami transactions.

The Modi government’s hit on black money may go down as one of India’s biggest economic blunders — or greatest achievements. Whether one agrees with the move or not, its implementation has been bungled and the collateral damage is likely to be heavy. Where did this idea originate? Surely the PM’s key economic advisors would not have recommended it.

Demonetisation is usually associated with decrepit economies and hyperinflation, such as Zimbabwe recently and Argentina in the past. The Argentine government demonetised several times in the last century; it even changed its currency’s name from peso to austral, then back to the peso — each time, it further reduced confidence in the currency. Myanmar, Ghana, the former Soviet Union, Nigeria and Zaire also demonetised, leading to devastating economic consequences. In all cases, often done by military dictatorships, demonetisation eroded confidence in the currency. It is therefore surprising that a reform-minded, popular, democratically elected prime minister has resorted to demonetisation. Even Arthakranti, the Pune NGO from where the idea ostensibly emanated, is distancing itself from a ham-handed plan to withdraw 85 per cent of the country’s currency overnight.

There is likely to be a one-time stock effect on those who held black wealth or kala dhan in cash. But much of it sits in gold, real estate or is offshore. Estimates of kala dhan vary; the most commonly accepted is around 25 per cent of GDP. Demonetisation only affects black money — not kala dhan. Estimates from previous raids show cash is 5-6 per cent of kala dhan. Cash is easily transactable but because it’s bulky, it’s hard to hoard too much kala dhan in cash. So, about 1-1.5 per cent of GDP is held in black money. If the government nets half of it through demonetisation, it’s around 0.5-0.75 per cent of GDP. This still leaves the bulk of kala dhan untouched. The flow of resources into kala dhan is unlikely to be affected by demonetisation. In fact, over time, even less will be held in cash, more in gold, real estate or shifted offshore.

The collateral damage from this move could be huge, economically and politically. The poor are already suffering, especially those without easy access to banks, post offices, even information on what to do. More long-lasting damage could be to trade in sectors where much business is conducted in cash — especially the informal sector and rural areas comprising about 40 per cent of GDP. The non-bank financial sector, on which many SMEs rely for short-term finance, has also been hit. As a result, the effect on economic growth in 2016-17 could be as high as one per cent of GDP — which will neutralise the one-time gain from demonetisation.

It is claimed India’s cash to GDP ratio, at around 11-12 per cent of GDP, is too high. But comparisons are made with countries at much higher levels of development, with much smaller, rural, un-banked populations. China has a cash to GDP ratio of around 9.5 per cent of GDP, Germany at 8 per cent of GDP and the US at around 7.5 per cent of GDP. There appears no correlation between corruption and the cash to GDP deposit ratio. Nigeria, widely regarded as one of the most corrupt countries, has a cash to GDP ratio of only 3 per cent of GDP as faith in the currency has eroded.

To weed out black money, more comprehensive reform is needed. It might have been better to go after real estate transactions, the movie industry, gold, weddings, election financing and benami transactions. Without tackling the reasons for black wealth, just demonetising won’t address corruption or eliminate the black economy. The Modi government should focus on achieving genuine economic recovery and ensuring job creation. More poorly conceptualised, badly implemented and moralistic policy prescriptions will take us back to the Hindu growth rate of 3-4 per cent of the 1970s and 1980s. We thought we were done with that.

The writer is distinguished visiting professor at the National Institute of Public Finance and Policy, (NIPFP) and former DG, independent evaluation office, government of India.

The transaction cost of the government's demonetisation exercise is projected to be about Rs 1.28 lakh crore during the 50-day window till December 30, 2016, according to CMIE estimates.

12% share of households, that stand in queues to exchange theor old currency notes with new ones, in the total demonetisation transaction cost. They stand to lose Rs 15,000 crore.

The transaction cost of the government’s demonetisation exercise is projected to be about Rs 1.28 lakh crore during the 50-day window till December 30, 2016, according to Centre for Monitoring Indian Economy (CMIE) estimates. According to Mahesh Vyas, the managing director and chief economist of CMIE, the exercise can only be considered worth if the government is able to unearth unaccounted cash worth at least the transaction cost. “If the government succeeds in unearthing even Rs.4 trillion unaccounted cash, then the transaction cost of this exercise would be about 26 per cent. It would be over 43 per cent if the unearthed cash is Rs.3 trillion,” Vyas said in his research note.

Though welcomed by many across the country, the government’s decision to demonetise higher currencies has left many in the lurch and utter state of confusion. The study also warned the impact of the rudimentary step could impact the economy over a longer period.

The cost of Demonetisation:

12% share of households, that stand in queues to exchange theor old currency notes with new ones, in the total demonetisation transaction cost. They stand to lose Rs 15,000 crore.

The government and the RBI are estimated to bear a cost of Rs 16,800 crore. This is largely because of printing of new currency and transportation of new currency to bank branches, ATMs and post offices.

Enterprises stand to pay the biggest price for this transaction, by way of loss of business. According to estimates, companies will witness a direct impact on business in terms of the drop in discretionary spending by households. This alone adds up to more than half of trillion rupees during the 50-day period till the end of December. Enterprise stands to lose Rs 61,500 crore or 48% of the total transaction cost of this exercise of demonetisation.

All estimates are limited to the 50-day window. However, the impact of low liquidity, broken supply chains and loss of confidence in consumers is likely to impact the economy over a longer period. Therefore, the transaction cost of this exercise is likely to be more than the estimated amount.

D Thomas Franco, senior vice president of

All India Bank Officers Confederation,

says Urjit Patel morally responsible for causing crisis,

deaths in country.

A TOP leader of India’s largest confederation of bank officers has called for the resignation of RBI governor Urjit Patel, whom he held responsible for causing “havoc” to the economy with the unprepared decision to demonetise currency.D Thomas Franco, senior vice president, All India Bank Officers Confederation which represents over 2.5 lakh senior officers from all nationalised, old-generation private sector, cooperative and regional rural banks in India, told The Indian Express that it is the RBI governor who should take moral responsibility for the crisis and the deaths of people including 11 bank officers in the last 12 days.

Franco said the government could have taken lessons from other countries and from its own demonetisation drive in 1978, when then RBI governor I G Patel had advised the government against the move. “We all know that neither Prime Minister Narendra Modi nor Finance Minister Arun Jaitley is an economist,” Franco said. “We have economists in RBI to take the right decisions on matters relating to economy and people’s lives. The present governor has utterly failed in his role by taking a crucial economic decision without planning, which has brought havoc to the nation’s economy and lives of the majority.”

Units are aware that the current 10th Bipartite Settlement’s period will end by October, 2017 and the wage revision under 11th Bipartite Settlement will become due from 1.11.2017. So far, even though we have been submitting the Charter of Demands earlier, there has always been delay in concluding the Settlement due to various hurdles during the course of negotiations. This has been creating avoidable anxieties and apprehensions in the minds of members and sometimes even leading to casting aspersions on unions as though the delay is deliberate.

Hence, expediting the Settlement in a time bound manner is very imperative. It is good that the Government has advised IBA/Banks to ensure that the wage revision process is initiated early and completed well before the expiry of the current settlement. We welcome this guideline of the Government.

Mandate to IBA:

Based on this guideline, already Banks have started giving mandate to IBA with the approval of their Board. Vijaya Bank, Corporation Bank, etc. have already given their mandate to IBA. Few more Banks are in the pipeline. Our All India Bank-wise Unions are requested to take up the matter with their management for giving mandate to IBA to discuss and finlaise the next wage settlement on their behalf.

Preparation of Charter of Demands:

AIBEA has already set up its Sub-Committee with Com. Lalita Joshi (Joint Secretary of AIBEA) as its Convener for preparation of the Charter of Demands and submission to IBA well in time. As in the past, we wish to invite suggestions from all our units so that the Charter of Demands reflects the aspirations of the membership and suggestions of our unions.

All our units are requested to discuss the issue at their respective level and submit their suggestions regarding the following aspects:

Send your suggestions before 15th November, 2016: The suggestions, neatly typed, should be sent to us not later than 15th November, 2016.

Thereafter, these suggestions will be discussed by the Sub-Committee and their recommendations will be considered by the Central Committee of AIBEA for finalization and it would be presented in the ensuing Conference of AIBEA before submission to IBA.

Friday, September 30, 2016

Comrades!My Blog completed 6 years and entering into the 7th year.All these years we have deliberated several issues relating to Bank Employees's Service conditions.It covered two Bi-bipartite Settlements period.We confronted on several occasions.But, that makes the deliberations interesting.Thank you , for your support and encouragement all through these years!

Further to our above letter on the issue, we observe that the IBA is advising Banks to take their own decision in respect of the continuation of the Scheme. The Scheme is a part of the BP Settlement and all Banks are bound by it as per the mandate given by them to IBA. There cannot be any question of discretion to any Bank to opt out. IBA has negotiated the scheme on behalf of the member Banks and now the burden of any problem cannot be put on the shoulders of the individual banks. IBA must address the problem and take a decision.

The insurance policy will come to an end on 30th September, 2016 and if it is not renewed before that, the policy may not continue and employees will be put into unimaginable hardship. When it was known that the policy will expire on 30th September, waiting till the end is unfortunate. Either UIIC is at fault or IBA is responsible. We regret to note the casual approach in this regard because the scheme covers lacs of employees and their family members.

While the hike in premium is no doubt disproportionate and needs to be sorted out between IBA and UICC, the policy cannot be allowed to be lapsed or discontinued. All Banks must continue to be covered by the policy by remitting the premium subject to resolving the problem later.

We wish to put IBA on notice that for any discontinuation of the scheme and lack of coverage for the employees, the IBA will be solely responsible and it may result in a serious and immediate industrial unrest.

Friday, August 19, 2016

RTN.ASIA

SBI Merger:

Employees to get 15 days to decide between VRS and SBI job

2016-08-18

Employees of associate banks will get only 15 days to decide whether to accept a new job with the State Bank of India or opt for voluntary retirement via an ‘option letter’ that will given to them as part of the merger of India’s largest bank with its four associates.

The terms and conditions regarding employees and their salaries also mention that these employees will get compensation that will be ‘no less favorable’ than what they were getting in their existing jobs prior to the transfer to the SBI.

Friday, July 29, 2016

A miserable 2 per cent

On June 30, headlines across newspapers were on the Union government having approved the Seventh Pay Commission recommendations. The Economic Times headline read, "Central staff hit pay dirt: An early Diwali". The newspaper said the government had accepted the recommendations doling out 'hefty' pay hikes. The salaries were expected to increase in the range of 14 per cent to 23 per cent. The bold fonts also announced that the lowest salary was to increase from Rs 7,000 per month to Rs 18,000. The highest salary, received by the cabinet secretary, was to go up to Rs 2,50,000 from Rs 90,000.

Sounds huge, does it not? But we need to analyse this. What is the bonanza and what are the hefty pay hikes which are speculated to be “fuelling inflationary pressures"?

Actually, the salary of Rs 7,000 and Rs 18,000 are not comparable. The equivalent of the Rs 7,000 basic salary, which was fixed 10 years ago and currently applicable with the dearness allowance added on, is Rs 15,750 (Rs 7,000 basic plus 125 per cent DA). In the salary of Rs 18,000 now announced, the DA is subsumed. Thus, a more accurate comparison would be the present salary of Rs 15,750 and the new salary of Rs 18,000. Similarly, the cabinet secretary at present receives Rs 2,02,500. The newspapers also announced that the total outgo as a consequence of the hike was expected to be Rs 1 lakh crore.

The comments on social media are more expressive! They question whether government employees actually deserve higher salaries: "Being paid more for what?", "More pay for less and less work", and "Babus don't deserve a hike." In fact, it is speculated that these increases will fuel inflation. Another school of thought believes that it will kickstart spending, thus generate demand and hence increased economic activity.

Illustration: Bhaskaran

The Pay Commission is announced once in ten years. Thus any increase in basic salary comes about once in ten years. Even if we were to assume that this Pay Commission has brought about a hike of 20 per cent, it would tantamount to a simple rate of 2 per cent per annum. Which employee in the private sector would be content with a 2 per cent per annum hike? A couple of years ago, I was pleasantly surprised to hear of the bonus received by one of the youngsters in the family. I found that his annual bonus alone was more than the sum of the total salary earned by me over my entire career! He could afford at least two vacations abroad for himself and his kids every year, travelling business class. My wife and I have never been on any vacation as yet. At most, every year we visited our parents using up my earned leave or she would accompany me if I travelled on work. For him the weekend is a total break from work—he gets no official calls over the weekend. Mine was a 24x7 job when I could not refuse anyone who called me. Once when my wife reminded the caller that he had called on a holiday, he had the gumption to remind her that official phones were given to government functionaries so that they could be contacted all the time!

There is then the fear that the pay increase will cause financial difficulties to state governments. True, it will. However, prudent financial management requires constant mobilisation of resources. However, considering the fact that we have just about an election every year, to local bodies or state legislatures or the general election, very few governments can take appropriate measures to increase taxes or tap methods to raise resources. If you cannot take harsh decisions to raise resources, why blame government employees who get a paltry increase of 2 per cent per annum?

I acknowledge that government employees are not the most popular guys. To a large extent, we are to blame for this. This perception needs to be addressed and only we can do that with our own endeavours and actions. However, if the general public still continues to grudge the paltry increase, they must realise that if you pay peanuts you get only ..........!

Former comptroller and auditor general, Rai is chairman of Banks Board Bureau.